A Debtor

[1991] FCA 681

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NOT FOR CIRCULATION l -

IN THE FEDERAL COURT OF AUSTRALIA ) 1

SOUTH AUSTRALIA DISTRICT REGISTRY j

1      No. SN 390 of 1991

GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE STATE	)
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OF SOUTH AUSTRALIA	1

Re : A DEBTOR

11 NOV 1991

EX TEMPORE REASONS FOR JUDGMENT

m: VON DOUSSA J.

15 OCTOBER 1991

On 11 June 1991 a bankruptcy notice was issued against the judgment debtor. The notice was based on an allocatox of the Supreme Court of South Australia for the sum of $7,063.13. The allocator was originally dated 14 February 1991 in respect of costs which had been awarded against the judgment debtor and another in Supreme Court Action No.648 of 1989. On 3 and

4 July 1991, after service of the bankruptcy notice,

applications were made to this Court by the judgment debtor to extend time for compliance and to set aside the notice.. An affidavit filed' by the judgment debtor also asserted that he had a cross-claim against the judgment creditor.

of the Bankru~tcv Act 1966, that is whether the judgment . .

On 4 July 1991 the registrar issued a Rule 10 notice
under the Bankruptcy Rules and set a hearing date forthe

purposes of the Court determining whether the judgment debtor

had a cross-claim which met the re&irements of para.40(l)(g)

debtor had "a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order... being a counter-dlaim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained".

A great deal of affidavit material has been placed on the file by the judgment debtor for two purposes. The first purpose was to establish the invalidity of the allocator, and the second was to establish the counter-claim, set-off or cross demand asserted by him.

The first of those matters, the alleged iniralidit? of the allocator, has now been abandoned, but I observe that: there were minor irregularities in the form of the allocator which were later corrected by officers' of the Supreme Court under the "slip rule". However, at no time did the irregularities affect the underlying debt established by the order of the

court. - At all times relevant to these proceedings there was

owing, pursuant to the order, the sum of $7,063.13' by the debtor. There was no substance in the first ground asserted in the original application seeking to set aside the bankruptcy notice.

The second matter has been vigorously pursued, that is
the assertion that there is a counter-claim, set-off or cross

demand which equals or exceeds the amount claimed in the

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1	bankruptcy notice which could not have been set up in the
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I	Supreme Court proceedings. The substance of the complaints
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!	now made by the judgment debtor is that the judgment creditor, in conjunction with others including it's. directors, caused him recoverable loss through their conduct, which conduct contravened numerous sections of the Trade Practices Act.
The conduct asserted concerns two separate events. The first was the issue by the judgment creditor, then named Magnacrete Limited, of a prospectus in about April 1987. The judgment debtor says that in reliance upon that prospectus the following investments occurred: a) the judgment debtor
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!	personally acquired 2000 fully paid ordinary shares in the judgment creditor; b) the judgment debtor personally acquired , . 49,001 fully paid ordinary shares in a company called Ausmintec Corp Limited ( "Ausmintec" ) which, , in turn, was a substantial shareholder in the judgment creditor; c) the
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.	,	company controlled by the judgment debtor, Armor Coatings
Australasia Pty. Limited ("Armor Coatings"), acquired 319,600
fully paid ordinary shares in the judgment creditor; and d)

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Armor Coatings acquired 810,252 fully paid ordinary shares "in	1::
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Ausmintec.	i:.:,
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The second event now relied on was conduct by the, judgment creditor and others, including its directors, in the	1.: .' /
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!	months preceding March 1989, connected with a takeover - whkh	..
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Jeffcott Investments Limited, a takeover which the judgment debtor asserts was in reality a reverse takeover by Jeffcott Investments ~imit'ed of the judgment creditor. The judgment debtor alleges he has suffered loss by reason of the impugned conduct because, firstly, the conduct about the prospectus induced the four investments identified above and, secondly, the conduct relating to the takeover diminished the value of those investments.

The judgment debtor asserts that.the 'aggregate of the diminished values of the four investments is in the order of $2,791,375, an amount which greatly exceeds the amount stated in the bankruptcy notice.

The transactions in the course of which the impugned conduct took place were complex and it would be a major task to investigate whether there was one or more arguable causes of action in support of the judgment debtor's position.

The judgment creditor has not attempted to answer in detail the numerous allegations made by the judgment debtor, but has argued on two grounds that the counter-claim, set-off or cross demand asserted by the applicant does not meet the
requirements of para.4O(l)(g) of the Bankru~tcv	Act.

The first point taken by the judgment creditor is that
the judgment debtor could have set up the substance of the

proceedings. Indeed, the judgment creditor goes so far as to say that the proceedings in the Supreme Court really put	1:	;	~.
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forward in substance the same complaints which the judgment	1:;
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debtor now seeks to agitate.	In my view, the judgment .	t
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debtor's answer to that submission is correct, namely that the

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cross-claim which he now seeks to advance is to recover .

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damages, and at the time when the proceedings were on foot in

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the Supreme, Court, no damage had been suffered by him which would have enabled him to bring the claim. The proceedings in

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the Supreme Court, whilst complaining in many respects about

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the conduct which is still complained of by the judgment

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debtor, were for the purpose of obtaining orders to set aside

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various resolutions which had occurred at a general meeting of

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the judgment creditor on 9 March 1989 and to restrain the

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judgment creditor, and other parties, taking various steps in

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pursuance of the proposed takeover.	In my view, the claim for	,...
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damages which is now sought to be raised by way of a counter- 1- .

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claim, set-off or cross demand, could not have been pursued in-	;	;	:	1
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the Supreme Court proceedings at the time that they were '	.
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The second ground argued by the judgment.creditor is that any claim for damages which the judgment debtor would now have	F < .
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based on the assertions made in the documents before this	;, ,. l . .>I
Court, is not a claim that would equal or exceed the amount of	' ; : i

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the judgment debt.	:	1:	;
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I have already referred to the four investments which in
aggregate the judgment debtor asserts caused him loss in the

order of $2.8 million. The first of those investments was by

j	the applicant personally to the extent of 2000 shares in the
1	capital of the judgment creditor. The loss asserted by him in
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t	respect of those shares is $900. There could be no doubt
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I	purposes of the exercise it can be assumed in his favour that . -
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there is an arguable claim up to $900. .- That claim, however, is not sufficient to comply with para 40(l) (g) as it does not equal or exceed the amount claimed in the bankruptcy notice.
To establish a cross-claim which exceeds the amount claimed in the bankruptcy notice the judgment debtor seeks to call in aid claims as his own which, in reality, relate to shareholdings registered in the names of other companies.
First he calls in aid the investments of Armor Coatings the purpose of the exercise, is a company controlled in Magnacrete and in Ausmintec. Armor coatings, I assume for
effectively by the judgment debtor. Nevertheless, it is a separate legal entity from him, and that company, not the judgment debtor, is the party in whose name loss of the kind asserted by the judgment debtor must be claimed. The judgment debtor is not entitled in these proceedings to set up, in opposition to the bankruptcy notice, any claim which Armor Coatings might have. It may be that in an indirect way the

judgment debtor has some financial interest in, and would gain some financial benefit from, the successful pursuit of a claim by Armor Coatings, but that is not sufficient. It is Armor Coatings that must bring the proceedings.

The judgment debtor also seeks to assert a loss which he can pursue by way of counter-claim, set-off or cross demand, arising from the shares which he holds in Ausmintec. In substance, he asserts a derivative action as a minority or oppressed shareholder. It can be assumed that under statutory law and, indeed, under the general law, that an oppressed shareholder in certain circumstances has standing to bring proceedings against the oppressors, but such a claim, when made, is one made on behalf of the company. It is not a claim by the oppressed shareholder in his own right for all the'

damages allegedly suffered by the company or even for a proportion of the damage equivalent to his shareholding. Even if the judgment debtor were permitted to bring an action on

behalf of Ausmintec against the judgment creditor and its	directors, the claim would remain one for the benefit of' the
company. In my view, he has no standingto claim damages suffered by Ausmintec as his own.

The draft statement of claim against the judgment.

creditor put forward by the judgment debtor to particularise the claim which he wishes to pursue does no more than show that if the allegations were made out he would have a claim

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best, therefore, the information which he has put before the	:;Kr . )	i .
Court shows that in his own .personal capacity he only has a	F; , -
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cross-claim for that amount, which is not a claim which	I.'
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exceeds the amount claimed on the bankruptcy notice.	! .	,	.,
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Accordingly, his affidavits fail to satisfy,the requirements	.:
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of para.4O(l)(g) of the Bankru~tcv Act.

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I wish to make it clear that in what I have said I am not passing any view whatever upon the merits of the various	..: .
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allegations that have been raised by the judgment debtor, nor	12
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am I passing any view on whether the companies Armor Coating	; 1
or Ausmintec might have claims for the amounts asserted in paragraph 41 of the draft statement of claim.

There will be orders as follows:-

1.  Declaration that the affidavit material filed by the

off or cross demand of the kind referred to in paragraph	judgment debtor does not establish a counter-claim, set-
40(l)(g) of the Bankru~tcv	Act.

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2.	Order extending time for compliance with the bankruptcy	p:.	.	.,	.
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notice to Monday, 21 October 1991.

3.  Order that the judgment debtor pay the costs of the applications to extend time , and to set aside the bankruptcy notice, and of the rule 10 proceedings.

I certify that this and the

true copy of the Reasons 3 preceding pages are. a for Judgment of Mr. Justice

von Doussa. n I

Associate &h-@---

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Dated:  Q#

Counsel for the Judgment Creditor	: Mr. M.J. OtDonnell
Solicitors for the Judgment Creditor:	Thomson Simmons & Co.

: Judgment Debtor

appeared in person